BERL Forecasts Short Interruption To Modest Growth

In their latest assessment, independent economists
BERL question the prevailing grim prognosis emanating from
some quarters.

While not advising a 'head-in-the-sand'
attitude, the BERL economists note that "there appears to be
a sound basis for expecting the NZ economy to weather the
oncoming period with only a short-term interruption to the
modest growth profile experienced over the past couple of
years".

"On the positive side are a growing Australian
economy, low interest rates, a competitive exchange rate and
a resumption of a migrant inflow", BERL Forecasts Editor and
Senior Economist Dr Ganesh Nana said.

On the other hand,
latest commodity price numbers and the accompanying slowing
world economy suggest the export bonanza may indeed be
entering its last phase. "But the easing in the commodity
price surge on which we have been dining-out over the past
couple of years, have been expected to ease for some time
now", observed Dr Nana.

Taking these pluses and minuses
into account, BERL write that sustained emphasis or focus on
confidence or sentiment jitters (whether justified or not)
could well derail the projected outcome. The role of policy
and business leaders may be critical in this context.

BERL
forecast GDP activity to show zero growth over the current
and the March 2002 quarter. The surprising strength already
recorded in the June 2001 quarter however, ensures the
March 2002 year averages 2.4% growth overall. Thereafter,
growth in activity returns to around the 0.7% per quarter
rate - resulting in 1.8% average growth for the March 2003
year, followed by 2.9% for the March 2004
year.

Summary sheet (page 3 from December 2001
BERL Forecasts) follows.

THE PICTURE

December
2001

Last issue the watchword was : caution. This issue,
the question is "is it really as bad as some are making it
out to be?" While not advising a 'head-in-the-sand'
attitude, there appears to be a sound basis for expecting
the NZ economy to weather the oncoming period with only a
short-term interruption to the modest growth profile
experienced over the past couple of years.

Positive
influences from a growing Australian economy, low interest
rates, a competitive exchange rate and a forecast migration
inflow are tempered by a moderate (but expected) easing in
commodity prices.

Clearly though, sustained emphasis or
focus on confidence or sentiment jitters (justified or not)
could well derail the projected outcome. The role of policy
and business leaders will undoubtedly play a central role in
this context.

NZ interest rates could well fall further
in early-2002 as inflation pressures continue to recede and
moves to 'prop-up' domestic confidence are warranted.
Nevertheless, concerns about the labour market situation are
expected to shift the Reserve Bank into tightening mode by
mid-2002, with 90-day rates set exceed 5.25% by end-2002.
Exchange rates are expected to remain stable as the major
central bankers work to eliminate that area of uncertainty.
Thus the US$ is expected to remain near 123 Yen and the Euro
near 89 US cents. Consequently, the NZ$ remains within the
42-43 US cents range over the immediate few months, rising
slowly towards 45 US cents over the remainder of the
forecast horizon.

Total employment numbers continued
growing strongly in the September quarter. In full-time
equivalent terms, job numbers have been increasing at a rate
of 2.7% pa in recent quarters. This represents a very strong
underpinning of ongoing economic growth. Employment growth
of around 30,000 jobs pa is expected to rise to the 45,000
to 50,000 pa range in the latter half of the forecast
horizon. Thus, the picture is of a reasonably tight labour
market, although inward migration is assisting to alleviate
some of the worst skill shortages. Attention to training and
skills development, especially in the regions, remains an
urgent requirement to support continuing growth in
employment and the economy.

GDP activity is set to
stall over the current quarter and the March 2002 quarter.
The surprising strength already recorded in the June 2001
quarter however, ensures the March 2002 year averages 2.4%
growth overall. Thereafter, growth in activity returns to
around the 0.7% per quarter rate - reflecting an overall
expansion in the 2.5% to 3.0% pa range over the forecast
horizon.

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